Unemployment Ticks Up—And That's a Good Thing

The economy gained 171,000 jobs in October, according to the Bureau of Labor Statistics. The previous two months’ job gains were also revised upward, with the BLS now estimating that an additional 50,000 jobs were created in August and 34,000 in September. With the revisions, we finally have more jobs than in early 2009, when the economy was in full collapse and President Obama took office.

Job growth is important, but what might be even more exciting news is that the unemployment rate went from 7.8 percent to 7.9 percent. Wait—isn’t unemployment the number we want to go down immediately?

Unemployment is a measure of people looking for work. As people are unemployed for longer periods of time, they become discouraged and give up on trying to find a job. When they do this, they are no longer counted as unemployed, which leads to an artificial decline in the unemployment rate—it’s not that the economy has added jobs; it’s that there are fewer people looking for them. The BLS tracks the flow of people between those outside the labor force and unemployment, and found a jump in those moving into unemployment through this path. Rather than indicating a weaker economy, this rise in unemployment is a sign that the labor force is gaining strength—enough so that it is now starting to bring people who had dropped out back into the labor force. Though we can’t see the specifics, it looks like people are starting to try and find employment again.

Economists have been debating what to make of people giving up looking for work in this recession. Would these workers be able to return as the economy picks up, or would they become permanently detached? Will the specific short-term problems we find ourselves in during the Great Recession turn into long-term problems? The data from last month is very encouraging when it comes to this issue. Though too early to say, it may mean that the best way to address the issues of long-term unemployment and those who have stopped looking for work is to simply continue to grow the economy through more aggressive stimulus.

The issue of workers dropping out of the labor force is particularly relevant for women.  In this recession, women’s labor force participation dropped to levels not seen since the early 1990s. As Willem Van Zandweghe of the Federal Reserve Bank of Kansas City noted, while both men and women have had declining participation rates in this recession, men’s seem influenced by long-term trends. Women’s declining labor force participation, on the other hand, is entirely explained by the short-term recession. However, other economists worry that this could become permanent, making it very difficult for women to eventually return to the labor force in large numbers.

Digging into last month’s job numbers for women shows that they are likely to return to the labor force as the economy continues to grow. Even as the household survey reported women gaining a significant amount of jobs last month, their unemployment rate went up, from 7.5 percent to 7.7 percent—as with the overall numbers, it’s an indication that more women entered the labor force looking for work. Though one month isn’t a trend, this is what economists want to see to confirm that the gains women made in the past 20 years weren’t wiped out in this recession. 

Other trends from the BLS report are less comforting. Government jobs are down 13,000, 5,500 of which are in the educational sector. The mass layoffs of governments workers, with more than 550,000 lost since 2009, holding the economy in check in one of the more underreported stories of this recession. 

Jobs in construction are up, even as the housing sector still stagnant. The other major check on the recovery besides local government austerity, is the housing market. Real estate construction is notably absent from an otherwise strong, broad-based jobs report.

At this point there’s little left to comment about in the 2012 presidential campaigns other than debating the polling in Ohio and watching videos of children crying about the election. The last major piece of information left was the jobs numbers, which look good for President Obama, even though conservative commentators will likely only focus narrowly on the increase in the unemployment rate. Whoever wins next week, they’ll inherit an economy that is approaching an escape velocity. The question is what they’ll do with it—nurture it towards full employment or suffocate it?

You may also like